Bankruptcies leap by a third

BRITAIN'S mounting consumer debt problem was highlighted today with record numbers of individual insolvencies unveiled. More than 13,000 people declared themselves insolvent during the final quarter of 2004, an increase of 34.6% on the same period last year.

The majority of insolvents, 9,803, chose bankruptcy, with 3,210 opting for more flexible and less damaging Individual Voluntary Arrangements (IVAs).

Mike Gerrard, a personal insolvency expert at accountants Grant Thornton said the profile of bankrupts had changed from struggling businessmen to consumers who are over-burdened by personal loans and credit cards.

He said: 'Personal insolvency levels have gone through the roof' Over the past ten years over 300,000 people have entered personal insolvency, that's more than the population of Coventry.'

The Government is concerned over the large number of consumers using bankruptcy as a way of avoiding debts and is considering tightening insolvency laws.

Changes introduced in 2002 have contributed to the rising number of individual bankruptcies. The Government cut the discharge period ? during which a bankrupt cannot open bank accounts, take out credit cards or resume normal financial life ? from three years to one.

There is a provision, however, that allows a judge to set a discharge period of up to 15 years if the applicant has been deemed an irresponsible bankrupt.

The Consumer Credit Counselling Service, a debt-related charity, said consumers in debt should consider bankruptcy only as a last resort. A spokeswoman said: 'Bankruptcy is certainly not an easy way out. Although the discharge period lasts for a year, the bankruptcy stays on your credit rating for six years and during that time you will find it very difficult to get credit or a mortgage. You also risk losing your house, car and any other assets you may have.'

The UK's debt mountain topped £1 trillion last summer and, although the rate of growth has slowed, is still expanding.

MPs warned today that credit card companies are failing to prevent consumers building up debts well in excess of their annual income through irresponsible lending. Credit card debts were blamed for at least four suicides last year and the CCCS is warning more could occur unless borrowing in curbed.

A company specialising in IVAs, Debt-Free Direct, has claimed nearly 900,000 people are considering an IVA. The company has been forced to expand its staff to cope with a surge in demand from debt-laden consumers.

Figures from the Department of Trade and Industry showed company liquidations fell 11.1% on last year to 2,938. Compulsory liquidations accounted for 1,136 of that number, with the remainder made up of creditors voluntary liquidations.